The wider economic impact from imperfect competition can occur if a transport improvement causes output to increase in sectors where there are differences between price and marginal cost. If a transport improvement causes a reduction in travel time for in-work travel it is fair to assume the time saved will be put to productive use. The value of one hour saved for a business traveller is therefore the market value of what the workers can produce in that hour. Because conventional cost–benefit analysis (CBA) assumes all transport-using sectors operate in perfect competition, where price equals marginal costs, the value of the additional production is identical to the gross marginal labour cost of the additional hour worked. CBA therefore measures the value of the travel time saving as a saving in gross labour cost. However, if price–cost margins exist, they, by definition, cause a wedge between the hourly gross labour costs and the market value of what is produced in that hour. This means that where there are price–cost margins, a transport-induced increase in output will cause a wider economic impact identical to the size of this wedge.
This benefit can be monetised.
For information about how to monetise this benefit see the Monetised benefits and costs manual.
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